A new report has found a correlation between the influx of Chinese capital into a country and a negative impact on its environment and the quality of governance.

The study – published by the Bulgarian Center for the Study of Democracy on September 9 – indicates that Beijing’s growing economic footprint in Central and Eastern Europe over the past decade has coincided with a decline in legal standards and governance and raises concerns about the environment and increasing debt levels in the region.

The report is the first large-scale study of China’s growing presence in central and eastern Europe, which has seen Beijing become the region’s largest trading partner.

China’s influential footprint has been made possible by the influx of around $ 14 billion in grants, loans, mergers and economic concessions since 2009 and around $ 50 billion in infrastructure projects, energy and telecommunications that are currently underway or awaiting implementation.

Research also shows that the more financially a nation becomes linked to China and the more Chinese investment’s share of its gross domestic product is, the “more likely” China has exploited rule of law issues. to develop “its economic and political influence.

“It’s a vicious cycle where authoritarian countries like China take advantage of loopholes and corrupt practices to expand their influence on the ground,” said Martin Vladimirov, one of the report’s authors who heads the energy and climate program. from the Center for the Study of Democracy. RFE / RL. “These networks allow more capital to come in, which leads to a bigger downturn. The data shows a very strong correlation between the flow of Chinese money and a decline in the quality of governance.

This connection is measured by the institution’s Chinese Economic Power Index, which aims to show the full extent of China’s economic influence. Regional growth has been uneven, with most of Beijing’s increased influence focused on the Czech Republic, Hungary and the Western Balkans – primarily Bosnia and Herzegovina and Serbia.

According to the report’s findings, Bosnia and Herzegovina, Hungary, Montenegro and Serbia experienced the most notable declines in these categories due to increased Chinese investment, with Beijing-backed companies enjoying tax exemptions, the ability to circumvent local labor laws and other forms of preferential treatment.

The study adds that especially in the Western Balkans, “local businesses with close ties to governments in the region have lobbied directly for the implementation of [Chinese] projects ”, with many of these local companies having a strong commercial interest to act“ as a bridge between China and national governments ”.

“All of these activities are technically legal,” Vladimirov said. “The overall effect is that government institutions no longer regulate Chinese companies, and these institutions stop serving the public interest and instead help private companies in the form of politically connected conglomerates or local oligarchs.”

“A very effective backdoor”

China’s presence in Central and Eastern Europe is very large, especially in the Balkans, where the country has invested billions in recent years and has raised concerns in Western political circles about the region’s financial dependence on it. vis-à-vis Beijing.

Serbia, where Belgrade served as an economic and political hub for Beijing’s expansion into the Western Balkans, is a notable example, according to the report, with the country serving as a showcase for various Chinese initiatives – from telecommunications to surveillance technologies. to public health amid the coronavirus pandemic – which can be adopted by neighboring countries.

But many Chinese projects in the region have recently come under the spotlight amid controversy over non-transparent contracts and accusations of corruption during the bidding process.

Hungarian Prime Minister Viktor Orban faced protests and political pressure from the mayor of Budapest after it was revealed that his government was planning to take out a $ 1.5 billion loan from a Chinese bank to build a local campus for Shanghai Fudan University.

A long-delayed billion-dollar motorway project in Montenegro also made international headlines and was at the center of the debate over Chinese influence in Europe after the small Balkan nation revealed that it would not be able to pay its debt to the Import-Export Bank of China. In addition to being late, the highway has come under criticism over inflated costs and overdependence on Chinese workers.

Ultimately, Podgorica received debt aid from a range of American and European institutions to help stabilize its finances and repay its loans.

“Central and Eastern Europe has been a very effective back door for Chinese companies to expand into Europe and the European Union,” Vladimirov said. “It’s part of a long-term strategy.

Environmental concerns

The report also finds that China’s economic boom has led to an increasing share of coal-fired electricity used to generate power in Central and Eastern Europe, along with cost reductions and environmental standards. lowered for projects across the region.

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In addition to debt problems, Montenegro’s controversial highway has also been in the sights of campaigners for the environmental damage caused by construction to the UNESCO-protected Tara River.

Likewise, environmental damage from a Chinese-owned copper mine near the Serbian town of Bor led to complaints and protests against pollution, forcing the company to temporarily suspend operations.

The report warns that rising carbon emissions and Chinese investment in coal could also hamper the aspirations of Western Balkan countries to join the EU. The bloc unveiled ambitious plans to phase out the use of coal over the next decade, as well as carbon emission reduction targets for 2030 and 2050.

“China is not trying to prevent countries from joining the EU,” Vladimirov said, “but the laws and policies that are adopted to facilitate Chinese investment indirectly undermine the accession process of many countries.”